When Games Become Gambles ' Criminal Law Implications Of 'Pay To Earn' NFT Games

• Published date: 21 October 2022
• Subject Matter: Media, Telecoms, IT, Entertainment, Criminal Law, Technology, Gaming, White Collar Crime, Anti-Corruption & Fraud, Fin Tech
• Law Firm: Osler, Hoskin & Harcourt LLP
• Author: Mr Matthew T. Burgoyne, Eric M. Levy, Ted Liu, Jacqueline Code and Jesse-Ross Cohen

Online gaming is big business, and only growing in size.¹ An important aspect of this booming market are non-fungible tokens (NFTs), which permit users to buy, sell and trade ownership interests in in-game assets. The global marketplace for NFTs has enabled an evolution in gaming, from the traditional 'pay to play' model (you buy the game, you play) to 'play to earn' (you play the game, you earn an NFT, you sell the NFT) - most famously, helping rural villagers in the Philippines earn income from home during pandemic lockdowns. The game they played, called Axie Infinity, recently passed US$4 billion in total trading volume.²

Making money from gaming may sound too good to be true - and in some cases, it is. Where 'pay to play' and 'play to earn' intersect to become 'pay to earn', the 'game' can become a 'gamble' for both the user and the operator.

Games of chance generally prohibited under Criminal Code

In Canada, gaming and gambling are primarily regulated as criminal law matters under the federal Criminal Code.³

Generally, the Criminal Code prohibits games that are fundamentally premised on: (a) the payment of money (or money's worth) by the user; and (b) the possibility that the user can earn money (or money's worth) from playing. More particularly, section 206 of the Criminal Code prohibits, among other things, the following:

1. Games of chance - It is an offence to dispose of any good, ware or merchandise by any "game of chance or any game of mixed chance and skill" in which the user pays money or other valuable consideration in order to play.⁴ While there is arguably an element of chance in every game, the reference to "game of chance" in the Criminal Code "contemplates not the unpredictables that may occasionally defeat skill but the systematic resort to chance involved in many games such as the throw of dice, the deal of cards."⁵
2. Swapping-up - It is an offence to conduct any operation of any kind by which any person, on payment of any sum of money, or the giving of any valuable security, shall become entitled to receive a larger sum of money or amount of valuable security than the sum or amount paid or given.⁶ (Notably, an element of chance is not required with respect to this prohibition.) The term "valuable security" is defined as meaning, among other things, "a document of title to lands or goods wherever situated" and "a stamp or writing that secures or evidences title to or an interest in a chattel".

Section 202 of the Criminal Code, relatedly...